Credit Cards

9 things to consider before closing a credit card account

How to make a close call

A woman considering closing her credit card account Credit: Getty Images / Giselleflissak

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Whether you’ve had a credit card open for a few months or several years, you may feel it’s time to part ways with this particular piece of plastic.

Maybe you don’t want to pay the high APR or annual fee anymore. You might also feel like you have too many credit cards, or you’re tempted to spend your way into debt. In these cases, it could make sense to close the account.

Of course, credit cards can also help you build credit and offer rewards and other perks. Before calling the issuer to close the account, consider these nine things.

1. The average age of your accounts will drop

Part of your credit score is based on the age of your accounts. This represents “a small but important chunk of your score,” according to Melinda Opperman, president and chief relationship officer at Credit.org, a nonprofit financial counseling agency.

With a longer credit history, lenders can see how you’ve managed credit over time. Closing a credit card lowers the average age of your accounts—particularly if you're new to credit or close one of the first cards you opened—which can lower your scores. That’s the first of two potential hits to your credit.

2. Your credit utilization will increase

The second potential hit to your credit is related to your credit utilization ratio, or the amount of credit you’re using compared to the amount you have available.

You'll decrease your available credit limit by closing an account, which automatically drives up your credit utilization ratio.

For example, if you have a $10,000 line of credit, and you typically carry a $3,000 balance month to month, your credit utilization ratio is at 30%—the maximum percentage experts recommend. That means closing a card with a $2,000 limit will increase your ratio above the recommended amount to nearly 40%.

This may hurt your credit score, but there is a workaround. If you have another credit card, ask the issuer if it will increase your credit limit. It may help alleviate the overall impact to your credit, Opperman says.

“If you do get a higher credit limit, don’t use the extra debt,” she adds. “Just let it improve your credit score.”

3. Your credit scores will likely recover

The impact to your credit is only one factor to consider when deciding whether to close a credit card, so it shouldn’t entirely guide your decision. If you otherwise use credit responsibly, your credit scores will eventually rebound.

In the meantime, you might want to hold off on applying for new credit. Monitor your credit scores and look for improvement. A higher credit score can help you get a better annual percentage rate, or APR, on a loan or credit card.

4. You might have some extra cash in your pocket

A credit card can be costly if you’re paying interest and fees, so closing the account may help you save money.

Interest comes into play if you carry a balance, and it can really add up. For instance, if over the course of a year you pay down $5,000 of debt on a credit card with an APR of 25%, you’ll pay $700 in interest. Your card may also come with some hefty fees. According to a U.S. News & World Report credit card fee survey, the average annual fee is $110.

Closing the card may make sense if:

  • You carry a large balance and have a high APR. Consider using a balance transfer credit card with a 0% promotional APR.

  • You never use the credit card and pay a high annual fee. A credit card with no annual fee may be better suited for your needs.

Another reason closing the card could save you money: “If you’re prone to overspending, and you find yourself maxing out your credit card at every opportunity,” Opperman says, “then it might be best to remove that temptation from your life.” Believe it or not, there are ways to build credit without using a credit card.

5. You may lose all those miles you racked up

Many credit cards come with a rewards system in place. Depending on your card, you may receive points, miles, or cash back on your purchases.

But check your card’s terms and conditions. Closing the account may cause you to lose the rewards you’ve accrued, so make sure you use or donate those rewards first. With a cash-back card, consider redeeming and depositing the cash and using it to pay off any outstanding balance.

You might want to wait if you’re about to receive a time-specific benefit. For example, a hotel credit card might offer a free hotel stay on your cardmember anniversary. If that date is drawing near, consider using the benefit and then closing the account.

6. The credit card may eventually close on its own

If you opened a credit card and never used it, the issuer may decide to close the account. (We’re talking several years have gone by without one single charge.) Although the issuer doesn’t have to give notice before closing the account, they’ll usually reach out before making the final move.

Because a closed credit card account can impact your credit score, consider whether you want to keep it open. If the card comes with no annual fee, consider using it for certain charges, such as groceries and bills, and paying it off each month.

7. Your debt won't magically disappear

Closing a credit card account doesn’t let you off the hook for any balance you owe. But you’re not required to pay off the balance before closing the account.

If you close the credit card with a balance, you’ll simply continue making at least the minimum payment every month—without the ability to purchase items or take out a cash advance. The card issuer will continue reporting your account balance and payment history to the credit bureaus until the balance is paid off.

8. You might have pending charges

If you’ve set up autopayments using the credit card, you'll need to update your payment settings on those accounts. Go through a few past statements and check for these recurring charges. Shifting the payment to a new card will help you avoid the risk of missing a bill.

Also make sure you don’t want to return items you’ve charged to the card, and there are no refunds pending from something you’ve already returned. It might not be easy to get a refund from the issuer after the account is closed.

9. You're on the hook if you have a joint account

With a joint credit card, two or more people own the account. While that means each person enjoys the credit card perks, it also means they’re each responsible for paying it off. If you have a joint credit card with a partner, their actions can affect your credit score, so consider how you want to handle the account after a breakup or divorce.

“Joint credit cards don’t just go away,” Opperman says, “If your ex refuses to make payments on a joint account, that will affect your credit as well, even if a judge ordered them to pay the debt.”

Opperman suggests closing the joint credit card and transferring the balances to two separate accounts.

Bottom Line

While there are reasons to keep a credit card account open, it doesn’t make sense if it’s costing you money with a high annual fee, or you’re tempted to spend and racking up credit card debt. And if you're avoiding doing so because you believe it will hurt your credit score, remember it's only temporary, and there are other steps you can take to mitigate the effects.

“Just be sure you are well and truly done with that account before taking the big step,” Opperman says.

When you call an issuer's customer service to cancel a credit card, ask how long it will take to officially close the account. Then, review your credit reports to make sure the information is correct. Check the balance, and make sure there’s a note next to the account: “closed by account holder.”

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